financial crisis presentation

financial crisis presentation - FINANCIAL CRISIS A combined...

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FINANCIAL CRISIS A combined currency and banking collapse, leading to high interest rates, capital flight, and a disastrous contraction of the real economy. A currency collapse is the abandonment of a fixed exchange rate. A banking collapse occurs when high interest rates cause a bank run and banks default.
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COMMON PRECONDITIONS: Financial liberalization Fixed exchange rates Large capital inflows Weak domestic banks and firms
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Collapse of currency value Massive capital outflow Overextension of banks and firms Rapid rise in interest rates Attempt to stabilize Interest rate risk Attempt to flee Loss of investor confidence Exchange rate risk
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Causes of Financial Crisis FC results from three fundamental economic problems: Exchange Rate Policies Capital Flows Bank Weaknesses Source: Wikipedia.org
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Currency Overvaluation Fixed XR’s conflict with real rates of inflation Investors eventually catch on to discrepancies between economic indicators and currency value Abandonment of commitment to fixed exchange rate after investors pull out Collapse due to overvaluation causes overshoot in XR adjustment, yielding a crisis
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Speculative Attack Governments try to hide insolvencies in its currency in order to keep investors confident
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This note was uploaded on 09/24/2007 for the course AEM 4420 taught by Professor Christy,r. during the Fall '06 term at Cornell.

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financial crisis presentation - FINANCIAL CRISIS A combined...

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